Deciphering the Code - Transcript

After all we’ve read and heard about health care reform, can you give us a quick primer?

Fensholt — It starts with this individual mandate that was the focus of the Supreme Court case last summer. You could argue that, in America, nobody is truly uninsured because whether you have commercially purchased insurance or employer-supplied insurance or not, if you’re in an automobile accident or you have a heart attack, the ambulance is still going to come. It’s going to take you to the hospital, and the hospital is going to treat you.

The question is: Who pays for that care? And there are quite a number of us in America who get that care and cannot pay for it, who do not have insurance. So the hospital has to shift the cost onto the backs of those who do have insurance. That’s one reason the price of health care is so high. When you go to the doctor or the hospital, part of what you’re paying for is the care supplied to those who couldn’t pay for it themselves.

The idea was: Let’s get everybody insured. The mandate is really a quid pro quo, or part of a three-legged stool that also includes an obligation for the first time under federal law for insurance companies to issue a policy to anybody who applies for one, no matter how sick they are.

Insurance companies must not only issue that policy, they must treat and pay for the pre-existing conditions — the sicknesses and illnesses that person arrives on the insurer’s doorstep with.

So the insurance industry said: Well, if we’re going to do that,we’ve got to get everybody in the boat. We need all the healthy lives in the boat, all the healthy lives in the insurance marketplace, as well, to help hold down the cost of providing care to those who show up and buy insurance when they’re sick, the really poor risks.

So that’s what the mandate is about. One of the interesting things we’ll see over the coming months is just how well this mandate works, how well it pushes people into the boat.

There is a modest tax penalty that can be assessed if you don’t have insurance. The penalty, however, can’t be collected like income tax can be collected. So once Americans figure out how effectively uncollectible that penalty is, we’ll see just how much of a mandate it turns out to be, as opposed to a recommendation.

But if we’re going to require Americans to have insurance, where are they going to get it? One place is in new insurance marketplaces called insurance exchanges — sort of Amazon.com-

like purchasing portals for individuals and small-group coverage. Every state is supposed to set one up. Many states are lagging behind, often for political reasons. In that case, the federal government says: We’ll step in and run the insurance marketplace for that state.

People who don’t get an offer of reasonably good coverage at an affordable cost from their employer can go out and buy insurance in this marketplace. If they’re vey poor, they get defaulted into the Medicaid program. If they’re aged or disabled and they’re not on Medicare, they’ll get defaulted into Medicare. Otherwise, they’ll be allowed to buy insurance in this marketplace, and if their household income is below four times the poverty level, they’ll receive federal money to help them buy that insurance.

On the other hand, if the individual does have a offer of reasonably good and affordable coverage from an employer, that’s were they’ll get that coverage. So the law requires employers of any size — generally speaking, more than 50 employees — to offer reasonably good and affordable coverage to its full-time employees or risk some penalties if those employees instead go buy subsidized insurance in the health insurance exchanges.

So that’s how the three main puzzle pieces of the law fit together.

There are some provisions on the fringe, too — insurance reform rules, benefits a health care plan must now supply that it wasn’t supplying in the past. Things health care plans used to do in the past to minimize their risk or exposure, like putting in dollar limits on how much care they’ll supply, those are now by the wayside.

How does this affect companies with fewer, or more than, 50 employees?

Avery — I think you can kind of look at it in several different buckets. First, you have to determine if you’re below 50 or above 50. ... There’s two sides of compliance to this law. There’s the administrative compliance side that says: What do I need to do from a reporting, communication, plan design, eligibility standpoint? Then there’s the financial compliance side that says I have to cover so many people or I have to pay this penalty. So 50 is really the break point for that.

If you’re below 50, you really need to ask yourself, first, do we want to be in the health care business as an employer? Quite honestly, I think that’s a very legitimate question for a lot of small employers. I think they have to look at their unique situation, their wage structure, the makeup of their employees, kind of what are the benefits of keeping the plan, what are the benefits of funding the plan or providing the plan in another way or helping their employees access coverage through the exchange.

Under 50, employers really need to be asking themselves how do they want to play in that space? How do they want to add value to their employees?

In the 50- to 100-employee space, I think you’re in a little bit more precarious situation because you’re subject to the mandates, but you’re still very much in this role of sameness as it relates to one of the things that health care reform is doing. You can argue good or bad, but one of the things that it’s doing is it’s creating an environment where our plan designs, our premiums, are going to look more and more alike. So, as employers, your plan is going to look more and more like, and cost more and more similar to the employer that’s in a similar situation down the road.

The challenge for employers in that space is to figure out how to get out of the sameness, how to get into an environment where they can have more impact on the cost structure of their plan.

At Power Group, we have about 80 employees. We’re largely unaffected by the financial compliance side of this plan. We really only hire full-time employees. We pay for substantially all of our employee’ health care premium. We’re doing what the law is designed to do, and that is for employers to cover their employees.

But for us, we put our plan into a benefits captive. The reason we’ve done that is simply that we’re not large enough to handle the volatility of a truly self-insured environment, but we need to get an environment where we have more visibility into our claims. We have more ability to impact utilization in our plan.

So I think employers in the 50 to 100 space, I’m not saying it’s a captive for everyone, but I’m saying that I think those employers have a different challenge. Their challenge is to try to figure out how to get out of the sameness and do something that benefits them.

Then 100-plus, I think it’s really focused on ... you’ve got the part-time eligibility thing, you’ve got to align those things with your overall company goals, objectives, and then you have to work on the things that drive utilization, and those remain what they have been over the last few years. It’s health, it’s wellness, it’s culture, it’s attitude, it’s training. Those are the things that ultimately will be successful in lowering costs in that market.

Can you define what a benefits captive is?

Avery — A captive is simply a small insurance company. Multiple employers, in most cases, will band together and form a small insurance company called a captive. What it does for an organization like ours, for example, is it allows us to do what we really aren’t able to do from a pure insurance standpoint, and that is band together with other like-minded organizations to create some scale but also to create some protection from volatility and claims.

It allowed us to partner with other firms about our size with some of the same philosophies around what we want to do from a wellness perspective. It gives us the ability to kind of feel self-insured, have a plan that acts like a self-insured plan but has an overarching layer of protection because of the size of the pool.

Power Group has about 80 employees, pretty much all of them full-time. JE Dunn is a large employer, with employment that will go up and down depending on the project and what work there is. How do you get a handle on what you need to do?

Best — We rely on wonderful people like those on the panel today to help us know what to do.

Now, having said that, we are slightly larger than 80. We’re about 2,600 employees across the United States. That goes up and down significantly as construction projects come on line and are completed. One of the challenges that we have is understanding the impact of that temporary workforce and the relationship those workers have to the health care law.

We’re in the process right now of doing some analysis on hours worked last year for those kinds of employees, because we do have full-time regular employees like me who aren’t going to really be affected by the law. It’s really these 250 or so non-union temporary employees that are at our construction sites that are going to be primarily affected, although we also have some implications for union workers who don’t have the kinds of health care benefits that the law requires. ...

Certainly we, as a company, are required to comply, but whether individual employees are required to receive this kind of coverage from JE Dunn, that’s the $64,000, or should I say $1.5 million, question for JE Dunn.

The issue of the types of medical plan offerings that JE Dunn has, we don’t have an issue with that. JE Dunn has been on the path of wellness for the last eight or so years. We have been covering preventive care at 100 percent for a long time. We have wellness programs, high-deductible plans; we have different incentives for getting discounted premiums and things of that nature. We are offering the affordable portion of the coverage that Ed mentioned. The coverage that we’re providing is “affordable” according to the regulations.

In addition, the benefits that that coverage provides meets the requirements for the legislation that it provides actual benefits. We’re not just taking premiums from people and not providing any benefits.

So the real issue for JE Dunn is whether, or the extent to which, those 300 or so non-union field employees working on those construction sites are going to be eligible for coverage. As I alluded, it could be as much as a $1.5 million hit to JE Dunn year over year. It could be smaller than that, depending on how we are able to structure the various stability periods and all kinds of technical language in the regulations that, again, I’m not the expert on. I’m still learning as all of you all are on what it actually means for us.

If my company has 55 employees, why don’t I just turn them all into part-timers and get around the restrictions?

Mason — Oh, that it were that simple. The government has thought of a lot of wrinkles here. They’ve been through these types of things many times and so they know what tricks are out there.

How do you know that you’re over or under this 50-employee threshold — and it’s called 50 full-time employees and full-time is 30 hours a week, or 130 a month? You really start with how many employees actually meet that definition, and then of the ones who don’t, who work less than 30 hours a week, you total up all their hours and sort of divide by 120 per month, and those are your full-time equivalents. You add your full-time-equivalent employees to your full-time employees to see if you’re at 50. So that trick doesn’t work.

The other trick that people have talked about is: Why don’t we split our business? We’ve got 80 employees today; let’s split it into two groups of 40.

(That) doesn’t work either. As is typical in the benefit plan context, the regulations say you have to aggregate all of the related companies. So, assuming common ownership or sufficiently common ownership, all of those 80 employees in that case would be counted toward the 50, and so both of those companies would be subject to this mandate.

What’s the worst that can happen if a company gets caught trying to get around the rules?

Mason — We’ll see. That’s a ways down the road. The penalties are pretty Draconian if you’re wrong. If you take the position that you are not subject to the shared responsibility, or play-or-pay, rules or whatever you want to call them, they’re excise taxes.

If you’re subject to these pay-or-play rules and you do not offer affordable health coverage or any sort of minimal level of health coverage — it doesn’t even have to meet these minimum-value requirements — to at least 95 percent of your full-time employees, then you can be hit with a $2,000-per-year penalty tax for each full-time employee, including the ones you made the offer to. So it’s a little bit complicated, and it can be a pretty big penalty.

You don’t want to run that risk, and it seems to me that just doesn’t make a whole lot of sense.

If you think that’s a risk, you make some sort of coverage available. It doesn’t have to be great coverage, and you can make the employees pay the full premium. You don’t have to meet any kind of affordability test to avoid that first-tier penalty.

The second tier, though, if you don’t want to face any penalty tax, then you do have to make sure that you offer affordable coverage to your full-time employees and that it meets the minimum-value standard, which I think most insurance today would probably meet. Because if you don’t and one of your employees, at least one, gets coverage through an exchange with a federal subsidy to help pay for that coverage, then you could be hit with a $3,000-per-year penalty for those employees, the ones who get coverage through an exchange.

So that’s the downside. That’s the risk if you take the position that you’re not subject to these rules and therefore don’t make the offer of coverage.

And the penalty is nondeductible?

Mason — Oh yeah. So if you’re a taxable employer, you’ll spend $3,000 in cash to pay that $2,000 penalty, and more than that for the $3,000 penalty.

What are some of the areas where it’s tricky to count full-time employees?

Mason — There are a lot of really special rules in those regulations and, depending upon what industry you’re in and what field, what your workforce is, you really do need to be aware of some of those rules. Some will be helpful rules, some will be surprisingly unhelpful.

For example, the government’s come up with a fairly complicated set of so-called safe harbor rules for determining whether certain employees are actually full-time or not, whether they actually do work 30 hours a week.

Most of your employes, you’ll know. We hire them full-time; they work 30 hours a week. You’ve got to deal with those. You’ve either got to make an offer of coverage to those employees or run the risk of paying the penalty tax.

But if you have a number of temporary employees that maybe work 20 hours a week, maybe they work 40 hours a week some other week, maybe even more than that, or maybe they’re only hired seasonally. Maybe they’re hired for the holiday season, or maybe they’re hired for the summer. So, over the course of a 12-month period, you don’t know whether they’re going to average 30 hours a week or 130 hours a month.

There is a way of setting your look-back period, or measurement period of up to 12 months where you’re going to count their hours and then average those over the course of that 12 month period, and say, yeah, this person did average 30 or more hours a week, so they have to be considered full-time going forward. There’s a stability period starting shortly after that measurement period ends. But there are a number of special rules even within that sort of safe harbor that people need to be aware of.

In the education field, the government has said you can’t treat someone who works full-time nine months a year as a seasonal employee because you know they only work nine months a year. ... You have to continue crediting them with hours of service during the summer, at least that’s the way I read the regulations. So that, even over the summer, if they’ve been with you during the school year, they’re still a full-time employee, and you still run that risk of paying the penalty tax if you don’t offer them health coverage.

So that works against you. The whole play-or-pay look-back stability period safe harbor, though, works in your favor because you could have employees who work seasonally or just during a busy time who do work 30 hours a week.

Rather than enrolling them in your plan this month and then unenrolling them next month and then enrolling them again, you don’t have to do that. The government has said that’s not good for employers; it’s not good for employees. It’s not good for them to have be moving between your plan and maybe the exchange, then back to your plan.

How different are these new rules from what has been in place in Kansas and other states?

Praeger — As you’ve heard, it’s complicated, to say the least, I think I’ll go back to kind of the beginning of the debate, and the debate was between ... keeping it a private-insurance-based system versus a single-payer system.

What we have is a private-insurance, private-employer-insurance-based system building on a system of employer-based coverage that we’ve had in this country essentially since World War II, when we had wage caps, and the one way you could get additional benefits was to add health care benefits.

That has just grown exponentially. That was back when hospital stays were, what, $10 and $5 to go to the doctor. As we know, health care costs have gone up dramatically. So what the law does is build on that private-employer-based system, and it is complicated.

One of the goals was to standardize the coverage, so that all employees are at least offered those essential health benefits. I would even make the case that someone who’s been very generous ... in a sense you’re penalized because for employees that are in a very scaled-back plan but then end up needing medical services that they can’t pay for because it’s not included in their benefit structure, those costs get shifted to the employer that is more generous with their benefit coverage.

Medical bankruptcy is the No. 1 reason for personal bankruptcy. Many of the people who file medical bankruptcy have insurance — at least some insurance, maybe not very generous. So the goal was to build on that private-insurance-based system and try to make it more equitable across the board.

Doing that, obviously, has produced, I guess it’ll be a cottage industry now for health benefit folks. Because we’re telling people that, if you’re an employer, you really need to get some expert advice because it’s probably too complicated for the employer who’s trying to manage lots of different responsibilities in the workplace.

When we were invited to come and testify (before Congress), our National Association of Insurance Commissioners, we argued that an age rating — at that time, they were looking at four-to-one — would create a situation where younger, healthier people would be charged significantly more perhaps than the benefit to older folks having their premiums reduced. ...

Absent any kind of a real enforceable penalty ... younger, healthier folks will just opt out because of the premium shock, the sticker shock. When they see what their premium’s going to cost versus what they’ve been paying, perhaps they’ll just say, “I’m not going to participate.” So we argued against the four-to-one and suggested that perhaps they should do five- or six-to-one. They ended up at three-to-one. So I didn’t do a very good job of making the case, I would guess.

That’s going to happen. We since have sent letters to HHS, and I don’t know that they have a lot of latitude. It’s in the law. Some of these requirements are going to be very hard to modify because they are in the law, and they don’t want to open the law up because of all the other things that could happen.

But we’ve argued (for) going to a broader age band and then gradually coming down to a three-to-one. I don’t know if they have that kind of latitude. We’ll continue to try to make that case.

Tell us about exchanges.

Praeger — There are three basic exchanges, or marketplaces, these Expedia-type marketplaces where you can log in to a website, enter your ZIP code, which will tell you whether your hospital or doctor is included in the network in the plan you’re looking at, and enter basic income information.

The federal government’s creating a data hub where IRS; Homeland Security, they have to certify the person’s a legal resident of the United States; Office of Personnel Management, which will govern the multistate plans; (Department of Health and Human Services); (Centers for Medicare & Medicaid Services); I mean numerous federal agencies that have to share information. So they’re creating this data hub.

So that’s where your income eligibility will be determined. So you’ll enter basic income information, your ZIP code, and it’ll tell you what plans are available in your area.

That sounds simple. I doubt that it’s going to be quite that simple.

The states were given the opportunity to establish their own state-based exchange, and in that case for those state-based exchanges, you set up the infrastructure, you set up the website, you essentially determine most of the rules. We think we’ll have about, I think right now, 18 states that are certified to run a state exchange.

The next category is a partnership, and (Feb. 15) was the deadline for states to submit a blueprint that would indicate how they would perform some of the functions in conjunction with the federal exchange.

Kansas won’t be a partnership state either.

So in Kansas, we will be a federally facilitated exchange. Missouri is the same. Neither state has submitted either the blueprint for how to be a partner nor been certified to be a state exchange.

In the case of federal exchanges, the website will be established at the federal level, but it will still have to be governed by the insurance benefits that are offered in that state. So it’s not a one-size-fit-all.

It was never envisioned that the feds would be establishing exchanges. I think they’re very surprised that states are not willing to step up. The complexities of trying to run a federal exchange, when you think about each individual state’s essential health benefits that comply with those mandates that have been passed in that state, it’s going to be make it a pretty complicated process for the feds.

The states that are doing the state-based exchange were given substantial amounts of federal dollars — millions of dollars — to help them get their websites up and running. They have to be open for business in October of this year. They have to link to the state Medicaid plan, because that income eligibility will direct you to Medicaid if you’re eligible. Or it will direct you to one of the subsidies up to 400 percent of the federal poverty level.

So lots of moving parts, lots of pieces to think about.

We will have still some authority. We’ll retain all of our authority to regulate the plans. Nothing in the federal law takes away the state’s authority to regulate the way the insurance plans operate in the state. But we will be giving up some of our authority to determine how the marketplace functions.

Where does this put insurers in Kansas and Missouri?

Fensholt — Health insurance companies are kind of the whipping boy of the health reform law. To some extent, they earned it. There were some things going on that led Congress to do some of these things.

But when we talk about when the law was sold to the American people as a law designed to get 40 million more Americans insurance and to provide and to force plans to provide additional coverages, cover things they didn’t cover in the past and to stop doing things they did in the past to help constrain costs and onboard all sorts of new risk.

Commissioner Praeger talked about these age bands. What she’s talking about is, prior to health reform, an insurance company in a given state might be able to charge its worst risks eight, 10, 12 times what it charged its best risks. Under health reform, that gets compressed so that now you can charge your worst risks only about three times what you can charge your best.

What Commissioner Praeger talked about as the consequence there is exactly right. You’re going to have older, sicker people who are going to reap a bit of a windfall here. Their premiums are going to go down. It’s the younger, healthier lives who are now going to be subsidizing, to a much greater extent, that older and sicker population. Their premiums go way up — the sticker shock she talked about.

You couple that with a very modest, effectively uncollectible individual mandate penalty, and it won’t take too long for the young invincible-feeling people in this country to figure out it’s a lot cheaper for me to risk the penalty than to pay for premiums. Yet it’s just these people, just these younger, healthier lives by the thousands, by the millions, that we want in these exchanges, in these marketplaces to make them function viably. So that’s a problem.

In addition — and what is, in my view, the most disingenuous aspect of this law — you cannot ask insurance companies to do all of these things and then impose all kinds of mandates on them and expect the cost of insurance to go down.

The other thing the law has done here is they’ve levied $100 billion in additional taxes directly or indirectly on insurance companies over the first five years of this bill. To put that number into perspective, in 2010 the 10 largest health insurers in America, their aggregate profits were about $12 billion. So you’re taking $100 billion in taxes, and you’re levying these taxes on the insurance industry and employer-sponsored health insurance plans simply because they’re insurers, simply because they’re health care plans.

If they levied taxes of this magnitude on your businesses and told you, we’re going to impose $100 billion in taxes on construction firms over the next five years, and the portion that you pay is equal to your market share, what would Steve and his company do? What would you do? You pass the cost of those taxes on through in the price of your goods and services.

For all of these reasons — the enhanced risk carriers are picking up, the additional coverage they have to supply, things they have to stop doing that they used to do to protect themselves, and now $100 billion in taxes over the first five years of this program beginning in 2014 — we’re hearing pretty scary stories about premium increases in the individual and small group market of 15 percent, 20 percent, 50 percent in the first year.

So, will the whole construct work ultimately? Maybe. Maybe ultimately we get enough younger, healthier lives into this marketplace that this kind of begins to shake itself out and begins to function more viably. But I don’t know.

Avery — Remember, the law was really not designed to address cost. The law was really designed to address coverage. So it’s really a cost-sharing arrangement.

In the beginning, you’ve got more cost than you’re able to share with membership. As Ed said, the proof will be if the people that designed the law were right, then we’ll get enough people in the system that eventually will understand why we did this. But right now it’s very front-loaded with cost.

It’s a very difficult environment (for carriers) from a renewal perspective. Part of that is anticipation of these known costs that are coming down the pike for them. And then part of it is the unknown cost that’s coming down the pike: not knowing who’s going to participate and who’s not going to participate.

So it is a difficult environment for carriers right now, and it’s going to be a difficult couple of years as it relates to rating and understanding the rating methodology.

Praeger — I would agree with the fact that the Affordable Care Act is probably a misnomer because there really is very little in the law to address the underlying health care cost, and that’s really what it’s all about. But there are a couple of opportunities, let’s say.

One is pilot projects that I think are being embraced around accountable care organizations to try to get to a system where you are not rewarded for doing more, but you’re rewarded for delivering the best possible services for the best outcomes. And that means, in the simplest terms, a hospital that today in the law is going to be penalized for hospital readmissions.

There needs to be a method of providing reimbursement to those hospitals for following the patient home to make sure that the readmission doesn’t occur. Today, it’s the four walls of the hospital where the services are delivered. So we need to speak outside those four walls and really think about a better coordination of care.

The whole goal should be not for delivering more care to get paid more. The goal should be delivering the best quality care to keep people out of the hospital in the first place.

These projects are up and running in a few areas of the country. I think the medical community has embraced this notion and thinks it makes sense. But the devil is in the details, and how those dollars get transferred from a fee-for-service system into one that probably makes more sense is something that the medical community — hospitals and physician community — are going to be watching very closely, and they’re pretty nervous about it. It’s hard to turn that big ship out there in the ocean and make those changes.

More immediately, for the next couple of years, there are a couple of mechanisms.

In 2014, high-risk pools go away because there’s no pre-existing condition exclusion. To accommodate the additional cost that potentially these plans would have, there’s a reinsurance pool that’s been established that will put money back in the states based on their existing high-risk pool enrollment. That money will go to the plans for helping to accommodate the additional risk that they’re taking on.

There are risk corridors and then risk adjustments. Risk corridors will be established initially where, if your risk in your pool is higher than a certain amount, up to about 3 percent, then you’ll receive money from the plans that have lower risk. Then, eventually, there’ll be a risk adjustment going forward after 2016 where there’ll be some method of moving dollars from plans with lower risk to plans with higher risk.

Again, the devil will be in the details in how that all gets accomplished.

But these are nipping around the edges of cost. I think we all recognize that our health care costs in this country are increasing at a rate that we can’t sustain. We’ve got to do a better job of delivering the services to control costs but also to get better outcomes than we are getting from our health care delivery system today.

There are some elements in the law. How much they’ll do to keep costs under control remains to be seen. But I think these are pilot projects to start with, these accountable care organizations. But to completely move the way health care is delivered today into a completely new system is not going to be easy.

Avery — When you start hearing about the risk corridor and the risk pools and the reinsurance and the age banding, how they’re shrinking the age banding, you’re seeing how all that kind of works together to kind of drive this sameness. You can argue that that’s a good thing, and you can argue that that’s a bad thing.

But it’s creating this inability for carriers. So carriers then don’t have the individual flexibility that they used to have where they could create different pools for different risks or they would age-band things differently. Or with the medical loss ratio requirement, they’ve got to pay so many dollars out to claims. So they just don’t have the flexibility they’ve had in the past.

Idealistically, that may all work together for the right reasons. But today, that’s why every thing is kind of front-loaded. That’s why the carriers are in the difficult position that they’re in.

How can an employer interested in getting in pilot programs for medical homes or accountable care organizations do so?

Mason — Right now I think the pilot programs authorized by the law are really existing under Medicare. There are parallel efforts under way in the private marketplace, insurance carriers banding together with hospitals and hospital groups to try and create new ways under which the insurance company will pay that hospital based on some agreed-upon quality measures, kind of edging in that direction.

The challenge for the hospital, and you could argue this is an issue we have in our culture, is the notion of individual responsibility. The hospitals say: “Wait a minute. We discharge a person. If they don’t take their medicine, they don’t go to rehab and they end up back in the hospital, why are we penalized for that? Where is the individual’s responsibility to take care of themselves?”

But the law is imposing these rules, and hospitals — in negotiations at arm’s length with insurance companies — are agreeing to some quality measures. It’s kind of aimed at reducing infections within hospitals, reducing accidents within hospitals and things like that.

Accountable care organizations have been around before. There was a pilot program involving 10 of them under the (George W.) Bush administration. And I think four of them saved some money and six of them didn’t. So they’re trying to figure out a way to pay to keep people healthy and not paying some a la carte basis because that provides an incentive to give more and more care.

But it’s hard. It’s kind of like the old HMO. You pay somebody a capitated fee, and if they don’t provide as much care as they did yesterday or last year, maybe they get to keep more of that fee. And then they make more money, and then there’s an incentive not to supply the care. So it’s a real challenge.

Best — JE Dunn doesn’t get paid based on the number of nails that we pound into the concrete or the staircases that we build. So when you think about why doctors should get paid for the number of things that they do, whether they’re helpful or not, that doesn’t make a lot of sense to a private organization like JE Dunn.

Companies hire us, organizations hire us, to do something, build a building, build this building. We have estimates for how many nails it’s going to take.

If it takes us more nails to build this building because, for whatever reason, that’s part of that cost that we estimated to build this building. That’s what we’re contracted to do. We’re not contracted or paid for the number of nails that we pound, so that if we just keep pounding more nails we’ll get paid more.

So I think that kind of approach to health care, of taking that kind of perhaps bad analogy and applying it to health care and saying, “Hey, it’s not just what you do, it’s what effect you’re actually having on these people.”

When JE Dunn looks at our health care cost, health care cost is an important part of our cost. But the real issue is more along the lines of productivity for our employees. It’s getting those employees at work and having them be productive.

Praeger — Many times, government contracts will build into your contract a bonus if you finish early or come in under budget. I think that’s one of the goals in accountable care, whether it will work, but the health plan and the provider community band together at a capitated rate. If they can deliver better care and can demonstrate that they are reducing some of that risk, then they share in that profit with the insurance company.

Now there’s concern: There was a provision in the way it was originally interpreted. They were quite willing to share in the uptake of doing a better job and reducing cost, but they didn’t necessarily want to share in the downside where costs maybe weren’t controlled. So the cost ended up being more, and I don’t think the hospitals and physicians necessarily wanted to be penalized and participate in the downside risks.

So Medicare is the one program they’ve had control over and haven’t done a very good job as I recall.

Best — There is an accountable care organization here in town that was recently selected by CMS to provide that kind of accountable care process that covers 13 physicians in the Kansas City Metropolitan Physicians Association — about 13,000 Medicare beneficiaries that are in that in our community. While they may have been in place for some time, there are still a lot of opportunities to improve that model.

These are physicians, independent physicians, that have banded together to try and coordinate care with different hospitals in an effort to not just reduce the cost and eliminate things that are duplicative or unnecessary, but to actually improve the quality. One of the things that continues to be missing in our health care environment today is the transparency on quality.

That’s improving, but employers like JE Dunn and my employees, I think, have a really hard time of knowing where should I go for my hip replacement.

You can’t necessarily just go to a Consumer Reports and see the little red dots for the different hospitals or the black circles and things like that. There has to be some way to make that much more effective for individual consumers, whether they’re through a JE Dunn employer-sponsored plan or through these exchanges that we’ve been talking about. There has to be some way for folks to understand more about the quality of the care that they’re going to be able to get at a particular facility.

Then, also, the transparency on the cost. Studies have been done that indicate there is very little correlation between the high-quality facilities and the low-quality providers or facilities. It’s the low-quality facilities that might be charging you the most.

Why would you want to go to that facility that’s going to provide you with the lowest quality and it’s going to be the highest cost? Nobody would go there if they knew that, if they were an informed consumer. I know that may be a oxymoron. But if you have people that really understand what their options are and are able to get information in a way that allowed them to see that quality and that cost before they went.

Obviously, we’re not talking about people who are in a car accident and in a coma and can’t make that choice. We’re talking about elective surgeries. I have a hip replacement, I’ve got some other kind of problem, cardiac surgery that I need done. I’m not going to die tomorrow. I have a choice between where I’m going to go or where my doctor is recommending.

There has to be a better way for us, as a society or as an employer or as a consumer society, to provide information to those consumers.

Mason — I was going to make pretty much the point Stephen just made, which is ACOs differ from HMOs in terms of quality. They’re not the same as an HMO because the goal is not just to lower cost; the goal is to improve quality. And to improve quality, you have to know how to measure it.

I think we’re moving into where we have the metrics to determine what is good-quality care and what isn’t good-quality care. That’s going to be necessary as the precursor to making ACOs work.

Praeger — With meaningful use of electronic medical records, I think we’re getting into the technology that’s going to allow a lot more of the quality evaluation and the coordination of care, so that you don’t have a patient being transferred from one facility to another and that facility is saying, “Yeah, we’re going to do all these tests over again because it’s too hard to get access to the original information.” That’s the kind of duplication of effort that we need to ferret out of the system.

Fensholt — I’ve got a boy in Afghanistan right now. Around his neck, on the chain with his dog tags, is an electronic medical record. His entire medical record is hanging around his neck. When I was in the service, they were putting it on your ID card; it was all right there. It does facilitate and assist with that coordination of care.

On the other hand, probably once a month I come home and find a letter from Visa saying that somebody, somewhere has taken my financial records from some credit card company or my bank. So it’s a double-edged sword. We need to head this way to drive efficiencies, and yet again the potential for loss of privacy is inherent in that effort.

If I have a small company and want to look into the insurance exchange, what do I look at?

Avery — You’ve got to determine if you’re 50 (employees) or above, because then you have a real financial incentive to offer coverage and, ultimately, affordable minimum-value coverage.

... If you’re not offering coverage today and you’re under 50 employees, you’re probably not going to offer coverage tomorrow. So it’s probably a moot point. If you are offering coverage today and you’re under 50 employees, I think you really just have to — the reality is I don’t think you’re going to be able to do too much for 2014 just because of the information coming out in the exchanges.

We’re struggling in the state of Kansas, state of Missouri. We’re struggling to get these exchanges up and running by Oct. 1. I think it’s going to be very difficult to have a lot of meaningful information too much prior.

But I think that you really ... have to inform yourself. You just have to really understand what is going to be available to your employees.

If you’ve got an employee base, your wage structure is such that there’s probably going to be a lot of subsidy-eligible employees, it might make sense for them to access coverage through the exchange. If you’re a relatively high-paying professional firm, you’re probably going to find it’s better off to maintain your group coverage.

Those are very simplistic analyses, but I don’t think we could emphasize it too much that it’s complex. As relatively entertaining as it can be to debate the law, it really will ultimately be unique to your situation. It ultimately will be unique to what the goals and objectives of your organization are and what you’re trying to build from a culture standpoint in a competitive landscape in which you operate.

So we really challenge every individual employer, once you kind of sort through all of it, to really look at it specifically to you, specific to how are your employees going to be affected, how does it align with your overall strategic goals and objectives?

How different will it be to compare plans on an exchange than the way employers might now work with an insurance broker?

Praeger — The agent-broker community is nervous about how these exchanges will operate, especially the federal exchanges, because of how they might be compensated for helping someone look on an exchange and purchase a product through the exchange.

But an employer, a small business person under 50 employees, if they’ve been offering a defined-benefit plan, they can move away from that to give their employee the dollars. Now, this is an after-tax event at this point because right now, one of the reasons from World War II on that we’ve had employer-based coverage growing is that it’s with pretax dollars for the employer, and it’s not counted as income.

... There may be if more small groups move to a defined contribution.

So you could let your employee, especially if you know you’re a company with low-wage workers who might be eligible for that subsidy — 400 percent of the federal poverty level for a family of four is over $90,000 in income — you can even say, I’m going to select the level. There are four levels of coverage: the bronze, the silver, the gold and the platinum, which is the actuarial value of the premium versus the cost sharing. ... You can even say I want you to buy from a specific company.

Initially, we didn’t think that was going to be the case, but you still can have some ability to direct the employee to the kind of plan you’d like them to be looking at on the exchange.

They do have to be side-by-side comparisons. One of the things our national association was directed to do was come up with uniform terminology that is used, medical and insurance terminology. So when you’re looking at a plan, you can really compare apples to apples because the language that’s used is the same. The enrollment form is a uniform enrollment form that will be used with all of the plans that are sold on the exchange. So that’ll make it a little bit easier for an employee to kind of look at options and make some choices.

So we’re talking about a lot of meetings between employers and their experts, then a lot more educational meetings with the employees.

Praeger — Just a lot of education for people who are going to be purchasing in the individual market. Now, we don’t know yet what Kansas or Missouri is going to do with the Medicaid expansion.

If the Medicaid program doesn’t expand, then that’s a big gap in terms of, in Kansas it’s about 140,000 people that will not be eligible for some sort of a health insurance plan. Meaning that they will still show up in those hospital emergency rooms.

Oh, and by the way, the hospital’s not going to get their compensation for it. Their payment for uncompensated care goes away with the federal law. So you’re still going to have folks going into the emergency rooms without coverage if Medicaid doesn’t expand, and the hospital loses its, we affectionately refer to it as the DSH payment — disproportionate share hospital payment — to help them cover that uncompensated care.

But you’re going to have Medicaid beneficiaries if Medicaid expands, people who are buying private insurance on an exchange or through a Medicaid exchange program. They’re going to need a lot of information. Even if the terminology is the same, what does it mean? What is a copay and a deductible?

The exchange will have a calculator that will show you what your out-of-pocket expense will be based on the plan you choose, based on the copays and deductible.

You may think a lower-premium plan is what you want to choose, but then you add in the reason it’s lower premium — because there’s a lot of copays and deductibles that you have to meet upfront. The calculator on these exchanges will have to show the individual what their actual monthly out-of-pocket expense will be.

But they’ve got to have enough knowledge to even understand the difference between those choices. That education component is a big one, and a lot of it will fall on our department. State exchanges that have federal dollars are getting some substantial federal assistance to help provide that education. So far, we don’t have the ability to apply for any of those dollars because it’s a federal exchange. So we’re going to have to rely on the federal exchange to educate our folks in Kansas, and I worry that that will be inadequate.

Mason — Commissioner Praeger mentioned earlier that Homeland Security needs to be involved in this, and that is because the individual mandate, the tax credit and for purchasing coverage through an exchange and the play-or-pay piece that applies to employers treats lawful residents of the U.S. basically the same way it does U.S. citizens.

Those who are not here lawfully are kind of outside of the scope of this whole thing. They’re not subject to the mandate; they don’t get the credit to buy coverage; they also don’t count against employers when it comes to the play-or-pay penalties.

But if you’ve got a number of employees working on H2A, H2B visas, agricultural workers, seasonal workers, those really have to be treated just like a U.S. citizen for this purpose. So you need to count them. You need to be thinking about their hours.

Another transition rule ... will help employers who have a number of seasonal employees. There’s a special rule for determining whether you’re a large employer, whether you have 50 or more employees. There’s a four-month rule for seasonal employees. But — assuming that your season is longer than four months so that you have a lot of seasonal employees that put you over the 50-employee threshold for more than four months — for 2014 only, when you would look back to 2013 to determine whether you have 50 or more full-time employees on an average basis, you don’t have to look at all of 2013.

The regs say you can pick a six-month period, a consecutive six-month period during 2013 to determine whether you are over or under that 50-employee threshold. As I read the regs, there’s no particular limit on what those six months are. So if you pick the six months where you don’t have a lot of seasonal employees, you might at least be able to stay under that 50-employee threshold for another year. That gives you all of 2014 to see how things are shaking out. Presumably, that rule goes away when it comes time to determine for 2015.

The regulations also are kind of helpful in dealing with employees who come and go.

There really is a helpful break-in-service rule that lets you treat anyone who has 26 weeks with no hours of service as though they were entirely a new employee. So it’s not the same kind of break-in-service rule that we deal with in the retirement plan context, but it is there.

There’s even a rule of parity, which is a rule that we grew to know and love in the retirement plan context. But it’s different. If an employee is gone less than 26 weeks, but is gone longer than they were with you, they could be treated as a new employee.

Best — Those particular, perhaps arcane, exception upon exception upon exception are exactly the kinds of things that we are working to understand better so that we can look at the people that are building that staircase this week and might be gone for two months and then build another staircase when that particular project comes up. Or folks who are with us for six months and then are not hired back again, really at all. What impact do their hours have on some of these calculations and our full-time equivalents and all of that?

It is requiring us to compile a lot of data and analyze a lot of data. Hopefully, after that point, we’ll be in a better position to see exactly what decisions we can control in the stability periods and the measurement periods and things like that and then determine what is going to be most appropriate for us.

In our competitive environment, we want to attract high-quality people. So while cost is an issue for us, we also understand that in order for us to attract high-quality people, we might have to offer benefits to these construction workers.

Back in 2005 and 2006 when things were much more robust in the construction market, I was getting calls from our HR team members across the country saying we need to provide more medical benefits to these hourly, temporary kind of employees because we are having a hard time finding good ones.

What is your market for talent? Depending on what that market for talent is and what those other companies are doing, you might have to be doing this anyway. We might have been offering this if things hadn’t changed from an economic standpoint. We might have been offering the same kind of coverage that I get to all of our employees who have been with us maybe three months, six months. We would have picked some arbitrary number not based on a regulation, but more based on what we think is appropriate given our workforce.

So all of that really does —in spite of the costs and all these other complexity issues that we’ve talked about — drive what it is that you’re trying to do. We’re not in the insurance business. We’re in the construction business, so we’re going to have to do whatever we need to do in order to find and keep good people.

Commissioner, can you talk a bit more about Medicaid expansion?

Praeger — First of all, Kansas is in the bottom five in terms of eligibility for Medicaid. So adults, childless adults, are not eligible at any level of poverty. Adults with children, the eligibility is about 30 percent — somewhere between 26 and 32 percent, depending on the year.

It’s not a hard-and-fast number that the Legislature puts in. You back into the percentage based on the amount of money that’s allocated each year for the Medicaid program, and so it isn’t a policy decision that it’s that low. It’s just the amount of dollars that are spent. So the federal law requires states to go up to 133 percent of the federal poverty level, and it pays for that expansion.

For a state like Kansas, in a sense, we’re going to get more federal assistance than a state that had already expanded their Medicaid population, because it only pays for the new eligibles at the new matching rate. Our current matching rate in Kansas for Medicaid is 40 percent state dollars, 60 percent federal dollars.

This Medicaid expansion starts at 100 percent. That amount will be paid for the first three years, up to the end of 2016, at the 100 percent match. Then it will gradually phase down to a 90/10 rate. So that population, that expansion of Medicaid eligibility, those new eligibles will be going forward paid for with a 90/10 match. So that does bring in, I think it’s about 140,000 new Kansans for eligibility for that kind of financial assistance into the Medicaid program.

The DSH payments, I was just in a meeting a couple of weeks ago, and I think the average disproportionate share hospital payment to Kansas is about $41 million. So hopefully we still have an opportunity to expand our Medicaid program because that would be a way of returning some of those dollars to the hospitals.

I would also just say that Medicaid payments to states are tax dollars that are flowing to Washington and then back to the states. So if we don’t expand our Medicaid program, we’re really losing an opportunity to provide some pretty important financial assistance to our folks in Kansas that will just go to other states that do expand.

The (Kansas) Hospital Association has done a survey that was just released I think yesterday. They are comparing this to a federal grant that might come into the state — let’s say to build the (National Bio and Agro-Defense Facility) at Kansas State University.

The infusion of new dollars into our state to help build the additional capacity to deliver the services is really a significant amount of federal dollars that would be flowing back to create additional jobs. So the hospital association is just arguing and saying we really ought to look at this as an opportunity, an economic growth opportunity and not just look at the additional Medicaid expenditure.

Can Kansas decide in the future to expand Medicaid?

Praeger — Yes, Medicaid is a program that, essentially, you participate in on a year-by-year basis. So the argument is that we don’t know what the costs will be in the future. You’re not committing to more than just on a year-to-year basis.

Now I understand that if you expand Medicaid and then try to pull back from it because you think you can’t afford it, that’s pretty tough. It’s hard to pull a service back. But that 90/10 match, we phased into that, so the full 100 percent coverage clock is ticking. So if you delay signing up for the Medicaid program for a year, you’ve lost a year. The state would have lost a year at the 100 percent coverage because the dates are set in the law.

Fensholt — There’s actually a political dilemma on this Medicaid expansion, too. It’s not just the impact on hospitals. Particularly rural hospitals are going to get crushed because they’re still going to see these uninsured people that the law thought would be covered by Medicaid now, that Medicaid would pay the hospital. But now the high court allowed states maybe not to expand their Medicaid eligibility window. So as Commissioner Praeger said, they’re still going to show up at the hospital. The hospital is not going to get its DSH payments because the law assumed Medicaid would be paying for this care, and so it shaved off the DSH payments.

The other thing though is, ironically, legal immigrants cannot get on Medicaid for the first five years in country. The law recognized this, and so it allows legal immigrants to obtain subsidy dollars to buy insurance in the health insurance exchanges. The idea was that if you are a U.S. citizen, the law would expand that Medicaid eligibility window to a point where you could then get into the Medicaid. But if the state doesn’t do that, if the state doesn’t expand its Medicaid eligibility window, you’ll have U.S. citizens down here with household incomes below the level where they’ll qualify for subsidies in the health insurance exchanges. They won’t be on Medicaid; they won’t qualify for subsidized insurance on the exchanges. They’re kind of lost in the no man’s land, whereas their legal-immigrant neighbor at the same income level will qualify for those subsidies in the exchanges to buy insurance.

This has led even (Arizona Gov.) Jan Brewer, as conservative governor as you’ll find, to kind of grit her teeth and go “OK, we’ll expand our Medicaid program,” because we don’t want this politically because this is a disaster to allow legal immigrants but not U.S. citizens to draw these subsidy dollars. So it’s really interesting politically.

Praeger — Just to expand on that, Ed, you point out the fact that they wouldn’t be eligible for subsidies. You’re eligible for the Medicaid expansion up to 138 percent of the federal poverty level. But the subsidies are for between 100 percent and 400 percent. So if you’re below 100 percent of the federal poverty level, but you aren’t even eligible to go on the exchange and buy subsidized coverage. So I mean you really are out of luck.

Hobby Lobby and some other companies have been in the news for fighting the requirement that contraceptives be included in basic care. Can you give us an update on this issue?

Mason — I have been tracking a rather interesting aspect of health care reform that really kind of came out of nowhere, at least to me. One of the requirements for nongrandfathered plans, plans that haven’t kept their grandfathered status, is that they offer preventive care services on a first-dollar basis — no deductible, no copay, no coinsurance.

There is a process set up for determining what preventive services have to be offered. There’s a special panel that does this. Once a year they come out with recommendations. In August 2011, I believe, the focus was on women’s preventive health care. One of those categories that was required to be offered was contraceptive services. It was described as all FDA-approved contraceptive services.

The administration recognized at the time that that would be a problem for certain religious organizations. So they made an exemption for churches. Basically churches and any entity fully supported by the church. But they did not exempt church-related organizations like universities, hospitals that are affiliated with their religious organization that might object to contraceptive services. And they certainly didn’t exempt for-profit businesses.

So we have seen a surprising amount of litigation filed by the Catholic Church and other Protestant denominations on behalf of universities and hospitals saying this violates our conscience. And also by secular, for-profit businesses, typically family owned businesses like Hobby Lobby, where their religious beliefs don’t include contraception.

In some cases, it’s only a very small category of contraception. It’s the so-called morning after pills that can be viewed as abortion. If that is against your religious principles, then you’re going to be opposed to the idea of having to offer that service in your health plan in any event — certainly on a first-dollar basis with no copay, no coinsurance.

... The courts have been a little reluctant to get too heavily involved in the challenges by the religious-related organizations because they were waiting for the administration to come out with its additional guidance. That additional guidance, on its face, allows those organizations to avoid having to provide that contraceptive coverage. You can argue whether it does or does not. They attempt to shift the burden to the insurance company or to the third-party administrator to do that.

What’s really been interesting to me has been the secular employers because you get into the First Amendment, the free-exercise clause, and you get into the Religious Freedom Restoration Act, which honestly I hadn’t heard much about. But there are some interesting arguments as to whether corporations, for example, have First Amendment rights. They certainly have some First Amendment rights to free speech, but it’s apparently an open question whether they have the right to exercise certain religion.

Size of employer matters in some of these lawsuits. If you’re under 50, you don’t have to provide health insurance. So I guess the argument would be, “Well, you don’t have to provide preventive care. You can just cancel your health insurance.”

If you’re over 50 employees, you’ve either got to provide health insurance or pay a penalty for not doing so. If you have health insurance, you have to provide the preventive care services, including this contraceptive mandate.

So I think this is headed to the Supreme Court.

We’ve gotten conflicting rulings from Courts of Appeals on preliminary injunctions. The 10th Circuit, which is where Hobby Lobby is located, has not granted a stay or any sort of preliminary injunction. Whereas the 8th Circuit, Missouri, and the 7th Circuit, in the Chicago area, have.

It’ll be interesting, both to see how they rule substantively on the law and then whether those cases get appealed to the U.S. Supreme Court. It’s kind of a fine point, but if you’re involved in it, it’s a very important point.

Praeger — I think it just points out how difficult it is to impose public policy through a private insurance system. It’s just another one of those little nuances that they probably hadn’t thought about when they were developing the legislation.

We have questions from the audience. The first one is: Will employers with locations in multiple states be required to feed employee eligibility data to multiple states, or will it be federally centralized?

Praeger — Their pools are established at the state level. That discussion came about because of the medical loss ratio. There was a determination that a company in one state might be able to meet that medical loss ratio of 80 percent in the small group or 85 percent in the large group market. That’s the percentage of the premium that has to go for health care or quality improvement activities versus administrative costs.

They said, we want to make sure everybody is treated fairly. So the only way you can treat folks fairly is to have that medical loss ratio be calculated at the state level. I think that probably enters into the pooling of employees across state lines. At least for medical loss ratio, it says you have to look at your employees in a given state and look at your employee benefits, and the insurance company has to demonstrate that they’re appropriately paying out premium for the employees in that state.

Fensholt — I think the hope for employers is that this massive federal data hub will be a central receiving point for uploading information about who your employees are and what coverage you’re offering and how good it is and who’s enrolled in the coverage, so that each of the 50 state insurance exchanges would be able to tap into this data hub.

As an individual virtually walks into the exchange and applies for insurance and asks for federal subsidies to help buy it, that exchange can then dial into the data hub and figure out: Is this person employed somewhere? If they’re employed, does that employer offer coverage, and is it reasonably good coverage? Is it affordable to the person?

Because if it is, you’re not supposed to get federal money to buy insurance in the exchange. I think the idea is that, from an employer reporting standpoint, the federal data hub is supposed to be the receptacle for all of this uploading of data from employers, Medicaid agencies, Homeland Security, the IRS, HHS, Medicare and people like that.

Mason — I think that’s right. The IRS will have to know, eventually, all that information because we understand that’s the way these penalties that we’ve been talking about would be assessed against employers. It’s not that you would have to self-report on your tax return that I had so many full-time employees I didn’t offer coverage to. That information will filter through the system, up through the system, and then back down to you in the form of a letter from the IRS saying, “Based on our understanding of the facts, here is what we understand to be the penalty you owe.”

You’ll have a chance at that point to challenge that, to look into the facts before you would have to actually pay any penalty.

Fensholt — One other thing I wanted to mention real quick is this notion of all these measurement periods and keeping track of people when they come and they go. Maybe you can treat them as a new hire when they come, but maybe you can’t. This is all and if all you’re doing is hiring regular full-time workers, this isn’t that big of deal for you. But if you’re a retail store, a restaurant, hospitality, agribusiness, amusement parks, staffing company, you’ve got real issues in tracking these folks whose hours are variable or they’re seasonal.

This data hub is not going to be ready to go anytime real soon. It may be functioning, but it will be kind of heading down the road on square tires and belching smoke. So what the government has kind of said to the employer community is, “Look, we’re not going to be able to affirmatively qualify somebody for eligibility for federal money in these exchanges. To a large extent, we’re going to have to depend upon representations that they make to us about what their situation is.

“If we award subsidies to them, it’s because we’re presumptively kind of assuming that you, the employer, are employing them on a full-time basis, and you’re not offering reasonably robust and affordable coverage. So then we’re going to circle back to you and ask you to demonstrate to us that this person is either not full-time or, if they are, you are offering them reasonably good coverage at an affordable cost. If you can’t demonstrate that, if you can’t demonstrate the hours they’ve been working for you, what coverage you’re offering, how good it is and what you’re charging for it, then you may end up paying that penalty.”

There is a huge administrative tail to this process for the employer where the employer has got to keep track of all these records and be able to demonstrate all this stuff to avoid that liability.

Best — While there might be some additional administration that goes along with that additional analysis that I kind of described earlier, you already have to keep track of who’s working for us and how many hours they’re working, and, for us, what particular construction project they’re working on and how that hour should be billed to that particular construction project and so on. So there is some additional stuff that we’ll have to do. But even if you are in a retail environment, I would imagine that you’re still tracking the number of hours that your employees work or how many people are making french fries at your fast food place.

How does this affect employers who have union employees, where the benefits may be negotiated and agreed to for a three- to five-year period?

Avery — I’m not aware of any special rules for union employees. I think you’d just have to go back to your union, assuming that there is a problem with your health plan, and renegotiate. Although I would think that union plans would be more likely to meet the affordability and minimum-value standards than non-union plants. There are some special rules for multiemployer plans that are collectively bargained with several employers participating in them.

What happens if an employer offers coverage and employees decline? Does the employer have a penalty exposure?

Avery — Not if the coverage that’s offered meets that affordability and minimum-value standard. Now, the flip side of that is, if the coverage doesn’t meet one of those standards and they nonetheless enroll, you’re off the hook. Really the key is, did you make the offer, did that offer of coverage meet the minimum-value and affordability standard? If you did, you’re OK.

They have to go to the exchange, qualify for the federal subsidy in order for the penalty to be assessed back on the employer.

What are your best estimations of the percentage of companies that will put employees to the exchanges and pay the penalty, and will that save them money?

Fensholt — At Lockton, we did a survey of our clients about a year and a half ago, and this was still 18 months, two years out from 2014. But about 20 percent said that they might think about it. The rules are such that it really doesn’t make a whole lot of sense for an employer to pay the penalty because there’s so many ways to design offerings to minimize cost through sort of plan design and minimizing the enrollment rate that you’re not paying the penalty.

But I’ll tell you what Congress estimated. The Budget Office in Congress thought that about 155 million of us in America will get group insurance through an employer today. And the Budget Office in Congress thought that by the end of the decade, only 4 or 5 million, net, would lose that coverage under this law. They just revised that estimate. They about doubled it, to about 7 million, a couple of weeks ago.

You have to think about this though, because an average employer — unless you’re a retail store, restaurant, hospitality, someone like that — your average per-employee, per-year cost to supply benefits is $8,000, $10,000, $12,000. That’s deductible. But compared to the penalty, the $2,000 nondeductible, there’s a huge spread there, and the spread will grow.

We’ve had clients tell us, “We’re not going to be the first to get out, but we’re not going to wait to be third either.” If we begin to see employers begin to go and it reaches a point where employers like Steve figure out that maybe we don’t need to offer benefits to attract and retain the talent that we want, that’s when you begin to have a problem because Congress thought maybe 7 million employees would lose their group coverage.

What if it’s 24 million, 25 million by the end of the decade? Then you got 18 more million Americans clamoring for subsidies in health insurance exchanges, and the money wasn’t budgeted to do that. So it sets up a really interesting political dynamic toward the back end of the decade if Congress has to revisit the amount of these penalties.

When the House passed its version of this law in November of ’09, the penalty it wanted to impose was 8 percent of your payroll not offering coverage. The Senate went the other way on Christmas Eve in ’09 and said $750 per year, just kind of an open invitation just to get out.

They settled on this $2,000, $3,000 scheme. But politically it’ll be fascinating to see if tens of millions of Americans are pushing these exchanges where the Congress isn’t forced to revisit that penalty and force American business to re-engage.

Praeger — I don’t want you to think I’m a black helicopter person, because I’m really not. But I think there is a reality out there that, first of all, the problem will not go away no matter how we address it. We need to find a way to get everybody in this country access to health care services at the appropriate time in the appropriate place, not in the emergency room. So if we’re building on a private insurance marketplace, if this doesn’t work and — coupled with the fact that we’ve got 20-some states where the feds are going to be running the insurance marketplaces. They’ve never regulated insurance before. Insurance has always been state-regulated.

So (the federal government) may decide, you know what? We can do this. But it would be a lot more efficient if we just took over all the exchanges, or certainly in all but those 18 states that have set up their own state exchange, and they may or may not want to stay in the business of state-based exchanges.

Then, I think we’re perilously close, and I don’t like the notion of a single-payer system. I know that’s very politically divisive, but I guess I’d rather put my faith in cost-containment activities being developed by insurance and companies and the health care provider community where the competition will make sure that they have to compete for good-quality services.

This is what could potentially happen, and that’s a single-payer system at the federal level because of all the complications we’re discussing and a single-payer system where the insurance company will still have a role to play. They’ll contract with five or six of the largest insurance companies in America to be the third-party administrators. Then we’ll have a top-down approach to cost containment that may or may not be popular with folks.

That’s what keeps me up at night worrying. We’ve got to find ways to make this work. It’s the system we’ve had in place since World War II, and if we don’t, I’m just fearful that the pressure will be so great to move away from insurance-based.

As someone said, insurance companies have been kind of the whipping boy through all of this, and some of it deserved. But I still think they understand how to deliver quality services. They have the relationship with the provider community today, and I just worry what it might look like if we move away from that system.

The problem will not go away, so Congress really needs to figure out how to make some of these issues that we’ve talked about today work.

The data hub, I think Ed’s right, I think we’ve heard lots of indications that they know it’s not going to be ready, up and running. Absent that data hub, I think the just huge amount of administrative complexities that will exist if you don’t have that electronic system in place is just mind-boggling to think about.

So it’s not a great system. We’re trying to impose public policy through a private insurance system. But I still have hopes that we can make it work.

Avery — I think when you look at the cost of getting out of employer-provided health coverage, your initial reaction is that it seems to make a lot of sense. But I think when you start looking at the practical cost, there’s a cost to exit that I think will preclude a lot of companies from making that decision. But ultimately it will be a Fortune 5 decision where it goes in this country. That’ll determine if it’s an employer-based model.

If the Fortune 5 drive that decision, then the law as it’s written today is going to have to change dramatically because it will be a federal, a fiscal nightmare.

Best — A lot of this is just one big distraction. When you look at the charts of the United States that show the obesity rates, has anyone seen those, those trending over time? Very bad. Is any of the stuff that we’ve been discussing today going to address any of that?

All of you are part of some sort of organization. I can tell you what your organization is having problems with from a health and wellness standpoint: obesity, hypertension, depression, things like that. Is any of the stuff that we’ve talked about addressing that? Not at all, and each of us, from a societal standpoint, in order for our country to be successful, we have to have healthy, productive people that can come to work and do good work. That’s certainly an issue for us.

One of the things that keeps me up at night is, in spite of all this cost, what are we getting for this cost? What can I do within the confines of my plan, my little JE Dunn medical plan and the wellness incentives that I can put in place and the plan design, things like giving people free hypertension drugs if they can’t afford them because giving them free hypertension drugs saves us money compared to the heart attack they’re going to have or the stroke they’re going to have later on.

So once we get through all this stuff, and all this stuff kind of settles out, these are still going to be going up. We’re still going to have all these people that are on antidepressants and things like that. What else are we going to do really affect the health of our population? That’s going to have to be addressed at some point as well.

How will the public know which physicians and hospitals are included in a plan that’s in a health care exchange?

Praeger — The exchange operating in the state will have a list. So even if you’re not interested in buying on the exchange, you’re still going to have access to going to the exchange, putting in your ZIP code, and it’ll tell you what plans are available in your area with your provider, and it’ll list them. ...

Avery — If this law works the way it’s supposed to work, and we get 40 million more Americans insured, that’s 40 million more Americans looking for a primary-care doctor, and they’re not out there. Fewer than 10 percent of incoming med students are taking primary care. The ones who are out there are selling their practices and retiring. It’s sort of a rise in demand meets a diminishing supply of primary care physicians.

Massachusetts has been down this road. The federal law is patterned after what Massachusetts did in ’06, and they got about 99.5 percent of their residents insured. But the newly insured were still winding up in emergency rooms getting their care because they couldn’t find a primary-care doctor to take them.

One of the things that’ll be interesting to watch in the coming years is where we, as Americans, go for our primary care. I think we’re going to Wal-Mart, and we’re going to go to Costco, and we’re going to get primary care from nurse practitioners and nurses and foreign-born and -trained doctors.

It puts a premium on the individual’s responsibility to take care of himself or herself, to manage their own health rather than asking somebody else to do it for us. This nation has done some remarkable things in changing public perception about drunk driving, about smoking. They have to do it now about obesity and taking care of ourselves.

With a smaller band between what we charge the healthiest and what you can charge the least healthy, does that take anything away, incentive-wise, from wellness programs?

Avery — I think the incentive remains on the employer side. I can’t speak to the exchange. It does seem to almost be a disincentive from an exchange environment standpoint. But from an employer perspective, the driver of claims is utilization, and a large part of that utilization is somewhat controllable through lifestyle-related behaviors. So I don’t think it’ll impact it from the employer perspective because the employer is looking up here saying, “I’ve got to affect utilization.” But from an individual perspective, I don’t know.

Praeger — I think that the one thing the law does is focus on preventive services, taking away the copays and deductibles, and that was immediate, even with plans that were already in the market. I think we all recognize that the issue around lifestyle choices, and over half of the medical interventions today are based on choices we make about food and alcohol and lack of exercise. It’s so complicated.

That’s why there’s some programs that focus on healthy communities, recognizing that good health is not just an individual choice. It’s all a part of being in a community that values wellness and has the streetlights and has safe neighborhoods and has the ability for kids to play outside after school and not have to worry about violence in their neighborhood.

It’s individual responsibility for how we live our lives, but it’s also a community taking ownership of creating safe environments so that people have access to the health care services they need but also can participate in some of those wellness activities. It shouldn’t be just for affluent neighborhoods. It needs to be across the board in all neighborhoods in our communities.